2009 (11) TMI 447 - AT - Central Excise

Fabrics- Notification No. 14/2002-C.E., dated 1-3-2002- the appellants challenge the orders passed by the lower authorities, original and appellate, denying the benefit of the Notification No. 14/2002-C.E., dated 1-3-2002 allegedly on misconstruction of the conditions attached to the said notification, including the Explanation No. II thereto. Held that- it create legal fiction/deeming provision/presumption of existence of documentary proof of payment of duty but does not relate to payment of duty itself. It cannot be interpreted to mean that even where product is subjected to nil rate of duty, payment of duty is to be presumed. Though it absolves assessee from their primary obligation of proof of payment of duty, legal fiction created by it is exclusively for the purpose of conditions to the Notifications which speak of actual payment. Therefore, existence of facts which could be presumed to give full effect to deeming provision would be relation to actual payment. Therefore, existence of facts which could be presumed to give full effect to deeming provision would be in relation to actual payment of duty as contemplated under conditions, and not of those facts which are neither incidental nor inevitable to payment of duty. it does not enlarge scope of the conditions and cannot be extended beyond its own scope to fact of actual payment itself as it will amount to virtually its rewriting. To presume payment of duty even in a case of no such payment having been made, would amount to creation of another fiction which is not contemplated under the said explanation. If department is able to show that assessee has not paid any duty on products specified in the conditions, then claim for benefit under the notification could be denied. Explanatory note to 2002 Budget did not merely refer to entitlement to benefit of Notification, without producing documentary evidence of payment of duty but also referred to compliance of condition of payment of duty, hence could be of no help to assessee.

Issues Involved:
1. Interpretation of Notification No. 14/2002-C.E., dated 1-3-2002.
2. Applicability of the Supreme Court decision in CCE v. Dhiren Chemical Industries.
3. Scope of Explanation II to the said notification.
4. Imposition of penalties by the lower authorities.

Detailed Analysis:

1. Interpretation of Notification No. 14/2002-C.E., dated 1-3-2002:

The appellants challenged the orders denying the benefit of Notification No. 14/2002-C.E., arguing that the authorities misconstrued the conditions attached to the notification, including Explanation II. The notification exempts certain textile goods from duty, provided the goods are made from textile yarns or fabrics on which the appropriate duty has been paid and no Cenvat credit has been taken. The Tribunal emphasized that the condition requires actual payment of duty, not just a deemed payment, and the term "appropriate duty" means the correct or specified rate of excise duty. The Tribunal rejected the argument that the condition could be satisfied without actual payment of duty, stating that the condition explicitly requires factual payment.

2. Applicability of the Supreme Court decision in CCE v. Dhiren Chemical Industries:

The authorities below relied on the Supreme Court's decision in Dhiren Chemical Industries, which held that for an exemption notification to apply, the goods must be made from duty-paid materials. The Tribunal found that the decision in Dhiren Chemical was applicable to the present case, as the notification in question also required actual payment of duty. The Tribunal rejected the appellants' argument that the decision was not applicable due to differences in the notifications, emphasizing that the condition in the present notification also required actual payment of duty.

3. Scope of Explanation II to the said notification:

Explanation II to the notification states that textile yarns or fabrics shall be deemed to have been duty paid even without production of documents evidencing payment of duty. The appellants argued that this explanation meant that the benefit under the notification could be availed even if the yarn or fabric was not actually subjected to duty. The Tribunal, however, held that the explanation only absolves the assessee from producing documents to prove duty payment but does not negate the requirement of actual payment of duty. The Tribunal emphasized that the legal fiction created by the explanation should not be extended beyond its purpose, which is to simplify the proof of duty payment, not to eliminate the requirement of actual payment.

4. Imposition of penalties by the lower authorities:

The Tribunal found that the issue involved the interpretation of the notification, and therefore, there was no justification for imposing penalties on the appellants. The Tribunal quashed the penalties imposed by the lower authorities, reasoning that the appellants' actions were based on a plausible interpretation of the notification.

Conclusion:

The Tribunal dismissed the appeals regarding the denial of the benefit under the notification, upholding the requirement of actual payment of duty as specified in the condition attached to the notification. However, the Tribunal set aside the penalties imposed by the lower authorities, recognizing the interpretative nature of the issue. The appeals were thus partly allowed concerning the penalties and dismissed concerning the claim for exemption under the notification.

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